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Village Roadshow sale will be litmus test for Ardent Leisure

September 11, 2017

Village Roadshow is expected to reap up to $100 million from the sale of the land on which Movie World is on. Photo: Supplied

Ardent Leisure’s newly appointed directors Dr Gary Weiss and Brad Richmond will be keeping a close watch on the sale of the Village Roadshow theme parks on the Gold Coast and what it could mean for the Dreamworld theme park.

One of the issues Ariadne’s Dr Weiss brought up about Ardent in his board seat campaign was that the surplus land around Dreamworld should be sold to developers and the cash from a sale used to support Ardent’s expansion strategy.

New laws in wake of tragedy

The Queensland government plans to implement all 58 recommendations of an audit following the Dreamworld theme park ride accident last year.

Ardent has instigated a review of the land and a price of more than $35 million is being touted by analysts from a sale. Ardent’s chief executive Simon Kelly said the surplus land could become an integrated “entertainment city”. Property developers say it could also accommodate a hotel, shopping centre or turn into residential sites.

In its sale, Village Roadshow is expected to reap up to $100 million from the sale of the land on which Movie World, Wet’n’Wild GC, Paradise Country, Australian Outback Spectacular, and Village Roadshow Studios are located, along with TopGolf, under construction and a development-approved nine-storey hotel.

The group will lease back the land and keep the parks operating. Colliers International has been appointed in the sale with the view of achieving close by the end of calendar 2018.

The sale and leasebacks come as theme parks have struggled for some time. Ardent was hit hard after the tragedy last October when four people were killed in the Thunder River Rapid ride.

At its full-year results, Mr Kelly said the overall loss of $62.6 million reflected the challenged trading environment experienced by Dreamworld following its re-opening, with theme parks reporting a trading loss of $3.4 million compared with a profit of $34.7 million in the 2016 year.

Village Roadshow’s theme parks division delivered an 2017 earnings before interest, tax, depreciation and amortisation of $55.9 million, compared with $88 million in 2016.

The group said the overarching impact on 2017’s trading was the tragedy that occurred at Dreamworld in October 2016, and was something management could never have contemplated.

“Furthermore, the odds of this happening have been estimated as hundreds of millions to one. Although not in a Village Roadshow park, the unprecedented publicity resulted in broad-based community concerns about safety of rides, dramatically impacting the earnings of Village Roadshow’s Australian theme parks. Based on overseas experience this is expected to dissipate, and Village Roadshow is implementing dynamic initiatives led by recently appointed theme parks chief executive Clark Kirby, that will accelerate this correction,” the group said.

Macquarie Equities analysts said their 2018 financial year forecasts also assume the sale of Village Roadshow’s 50 per cent stake in the Golden Village Singapore, worth about $150 million.

They said the deal reinforces Village Roadshow’s renewed commitment to de-leveraging with the proceeds to be used to reduce debt and improve the balance sheet. And it enables Village Roadshow to better progress current growth strategies, such as TopGolf.

They estimate about $90 million in after-tax proceeds, resulting in net debt of about $257 million.

“The transaction marks an improvement in the Village Roadshow investment case. Gearing appears to be moving towards more comfortable levels,” the analysts said.

“However, the Singapore asset sale remains critical to replenishing the balance sheet and alleviating leverage concerns in full. The key challenge remaining for Village Roadshow management is restoring credibility with investors following a period of successive downgrades.

“Delivering improved operational performance is key, and executing on initiatives such as the above should see sentiment improve over time. Operating conditions remain uncertain, and management needs to demonstrate a sustained period of improved performance to justify a re-rating.”

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